Your Questions, Answered: Gifting Limits

January 14, 2021

On this week’s episode of Your Questions, Answered Larry Sacks and Brian Leitner discuss rules that surround gifting, and answer the following question:

“What are the limits in regards to gifting?”

Do you have questions you’d like answered? Email them to QA@marinerwealthadvisors.com, and we’ll provide answers.

Transcript:

Brian Leitner: You have questions? We have answers. Back with another quick clip. We had an email from an individual that has been making gifts to friends and family for some time. And they just realized that there are rules that surround gifting. Would you give us an overview of these rules? 

Larry Sacks: Sure. Currently an individual can give up to $15,000 per annum and if married $30,000 to as many individuals as you, you want. This is an annual limitation and is measured and is adjusted every January the first. So, every January first rewinds and you start again, and you can do this without having to file any tax returns or any paperwork. So, it’s pretty simple. You just give the money away. And as long as you keep under those limits, you’re in good shape. 

Brian: So, on an annual basis, anyone can give $15,000 if you’re single, or up to $30,000, if you’re married, filing jointly, to anyone and to as many people as they want. Is that number indexed for inflation? 

Larry: No, it’s not indexed for inflation. It hasn’t been that number and it’s grown very slowly over the years. It was pegged at $10,000 for a long time and slowly increased, and is currently now at $15,000. And that’s where we stand today and it’s not an automatic increase, so it’ll be there until it’s changed sometime in the future. 

Brian: Larry, many times people give gifts of cash. Is that the best asset to give or are there other options that people should consider? 

Larry: Well, there are better options, especially if you’re trying to give money to a not-for-profit organization or to people in a lower tax bracket. And usually people within gifts, equities, real estate, stocks, bonds, and even some of their personal property, like an art collection or paintings. Any of that kind of stuff that has appreciation, would be good for gifting. 

Brian: So that way, they don’t have to sell the asset and pay tax on that asset. They can simply gift it away. And ultimately, that tax liability has been transferred. 

Larry: That is correct. You’re far better off giving it to them and let them sell it. And then obviously they can get a bigger, a bigger round of money because Uncle Sam is not involved. 

Brian: So, Larry, when you’re working with clients, what are some other strategies that you might recommend as it relates to gifting? 

Larry: We often run into people who would like to give money to a not-for-profit organization and typically they would be far better off donating stocks directly to the not-for-profit organization. As we just discussed, instead of selling it themselves, paying the taxes, and then having a lesser amount to give. This way, they could give the gross amount to the not-for-profit. They get a full charitable deduction for the full value. So, it’s what we would call a classic win-win for everyone. 

Other examples that we often see are parents or grandparents gifting appreciated assets to their children or grandchildren who in turn could then sell them. And then you would presumably be in a lower tax bracket than the parents. And, one of the most common, which we’ve seen more of late, is for parents and grandparents, to give money to a child, to the 529 college savings plan. This is very popular because you can give the money to the child and the money will grow and grow. And if used for school or college later in the future, it can be totally tax free. 

Brian: So, the growth is tax free. And just a minutes ago we talked about the rules that surround gifting What about the provisions in the 529? Does that change anything inside of these 529 plans? 

Larry: 529 has one unique provision where you can, as they call it, jump-start it, and do five years in advance and then not pay for the next five years. So, for example, an individual could take their $50,000 times about up to five times and put that in as a lump sum. And if, if it’s a joint gift, you can do double that amount of money. So clearly that would be a large sum going into the 529 plan, which would then potentially have the benefits of a longer growth as opposed to spreading it out over a five-year period. And that is unique for the 529 plan.  

Brian: That is a terrific provision for those that are interested in college funding. 

Larry: It sure is, yeah. 

Brian: Are there landmines that people should be cognizant of as it relates to gifting or a gifting program? 

Larry: Yeah, sure. There’s always tax consequences and landmines to be aware of. And the most critical one is that when you give property to someone else, they receive it with your basis. So, whatever you paid for the property is what they start with. Unlike inheriting property, where you start off with the value, as of the date of the decedent, with an inherit, with a property that’s given to you by gift, you start off with their original cost.  

And so, unfortunately over the years, I’ve run into this problem more often than not where an elderly parent would say to the child, let me just quick claim you my property, my house, or whatever. We may save some probate taxes down the road and whatever, it’ll just make it a whole lot easier. You might as well just have the property now. That is, can be an extremely costly mistake because then, the children will now have their property at the low basis. And when they turn around and sell it, they could have a substantial tax burden. If they would’ve waited and rather inherited that property, they would have got a stepped-up basis and could have eliminated the majority of the tax. 

Brian: Larry, this has been terrific. I really appreciate you being here and sharing some of your insight with us. 

Larry: Thanks, Brian. I appreciate the time and the opportunity to be with you. 

Brian: And if you’re watching this and you have questions, you’d like answers to, please feel free to email us at QA@marinerwealthadvisors.com. Thanks for watching. 

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